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Globalization over the last several decades has greatly reduced inflation and allowed the first world to “gain” far more wealth than would have actually happene

by lumb63 3y ago

Globalization over the last several decades has greatly reduced inflation and allowed the first world to “gain” far more wealth than would have actually happened otherwise. For instance, 70 years ago, more American cars were built in America. The money that consumers paid for cars went to American companies. This caused increased demand for (American) workers, which increased workers’ wages, and thus their spending power, and thus increased the price of goods. Their pay increased sufficiently to allow them to maintain, and in fact improve, their quality of life, because the inflation was driven by wage growth. Compare to a globalized world. The money Americans spend on cars today mostly ends up in foreign nations. The demand for the produce of foreign companies pushes up wages in foreign countries, and causes inflation there. Americans get items for cheaper than they could be produced in their own nation, due to labor cost differences. The rub is that they’re not fueling their own economies, which leaves workers unable to afford items which cannot be produced elsewhere.

bumby 3y ago
That strikes me as true. I would argue that it increases consumption, but not necessarily "wealth". But with it comes the uncomfortable truth that what's bad for America might also mean it's good for other parts of the world.
pipes 3y ago
You are really drifting in to largely discredited mechantilism there, the belief that money should not flow out of the nation. https://www.investopedia.com/terms/m/mercantilism.asp#:~:text=Mercantilism%20was%20a%20form%20of,sought%20to%20support%20domestic%20employment https://www.investopedia.com/terms/m/mercantilism.asp#:~:tex....
- fennecfoxy 3y ago
  What if 100% of your economy's money goes out to foreign tax havens then? Something that works for the general case should work for both extremes, because then that better informs usage for the general case (this applies to development too, imo). If we know how to manage the economy when: no money is flowing out to foreign countries + all the money is flowing out to foreign countries, then we have a good idea of the best way to handle _some_ money flowing out to foreign countries.
- bumby 3y ago
  Devils advocate: what are the limits of this? I.e., does it imply any arbitrarily boundary of commerce is invalid? It strikes me that most people would feel like spending money on your own family/tribe/community may be reasonable despite what mercantilism says as an economic concept.
  - JumpCrisscross 3y ago
    > does it imply any arbitrarily boundary of commerce is invalid Not invalid as much as leaves everyone in the measured system materially worse off. Mercantilism is simply a failed way to raise your own living standards. (It might be a good way to concentrate wealth within your system. But only within, not from without.)
    - bumby 3y ago
      Isn’t this just playing a trick with system boundaries though? If I hire my son to do my yard work instead of my neighbor, how does that make my son objectively worse off? Within system/family, obviously this has increased wealth compared to hiring my neighbor. Without system, it has only made me worse off to the proportion that I have "overpaid" my son. But because it's zero-sum, my son has benefited to the exact proportion that I've been made worse off. Edit: Back to the context of globalization, "overpaying" my neighbor to build my car only makes me worse off to the same proportion s/he has been helped. When you factor in the concept of preference for psychological distance, that might be a worthy tradeoff. I.e., there's a psychological basis for valuing the financial well-being of my son/neighbor over the abstract person in another country* and this action seems logically consistent with that psychological framework. * This isn't to say the decision is morally justified. That's a different argument than the economic one.
      - JumpCrisscross 3y ago
        > Isn’t this just playing a trick with system boundaries though We agree. Consider the world to be your street and your country your neighbor and your houses. Paying your neighbor more to keep the money local doesn't work to make your "country" richer. It just helps concentrate wealth with your neighbor. Mercantilist protectionism is about redistributing, not increasing, domestic resources.

by lumb63 3y ago

bumby 3y ago

That strikes me as true. I would argue that it increases consumption, but not necessarily "wealth". But with it comes the uncomfortable truth that what's bad for America might also mean it's good for other parts of the world.

pipes 3y ago

You are really drifting in to largely discredited mechantilism there, the belief that money should not flow out of the nation. https://www.investopedia.com/terms/m/mercantilism.asp#:~:text=Mercantilism%20was%20a%20form%20of,sought%20to%20support%20domestic%20employment https://www.investopedia.com/terms/m/mercantilism.asp#:~:tex....

fennecfoxy 3y ago
What if 100% of your economy's money goes out to foreign tax havens then? Something that works for the general case should work for both extremes, because then that better informs usage for the general case (this applies to development too, imo). If we know how to manage the economy when: no money is flowing out to foreign countries + all the money is flowing out to foreign countries, then we have a good idea of the best way to handle _some_ money flowing out to foreign countries.
bumby 3y ago
Devils advocate: what are the limits of this? I.e., does it imply any arbitrarily boundary of commerce is invalid? It strikes me that most people would feel like spending money on your own family/tribe/community may be reasonable despite what mercantilism says as an economic concept.
- JumpCrisscross 3y ago
  > does it imply any arbitrarily boundary of commerce is invalid Not invalid as much as leaves everyone in the measured system materially worse off. Mercantilism is simply a failed way to raise your own living standards. (It might be a good way to concentrate wealth within your system. But only within, not from without.)
  - bumby 3y ago
    Isn’t this just playing a trick with system boundaries though? If I hire my son to do my yard work instead of my neighbor, how does that make my son objectively worse off? Within system/family, obviously this has increased wealth compared to hiring my neighbor. Without system, it has only made me worse off to the proportion that I have "overpaid" my son. But because it's zero-sum, my son has benefited to the exact proportion that I've been made worse off. Edit: Back to the context of globalization, "overpaying" my neighbor to build my car only makes me worse off to the same proportion s/he has been helped. When you factor in the concept of preference for psychological distance, that might be a worthy tradeoff. I.e., there's a psychological basis for valuing the financial well-being of my son/neighbor over the abstract person in another country* and this action seems logically consistent with that psychological framework. * This isn't to say the decision is morally justified. That's a different argument than the economic one.
    - JumpCrisscross 3y ago
      > Isn’t this just playing a trick with system boundaries though We agree. Consider the world to be your street and your country your neighbor and your houses. Paying your neighbor more to keep the money local doesn't work to make your "country" richer. It just helps concentrate wealth with your neighbor. Mercantilist protectionism is about redistributing, not increasing, domestic resources.